Croatia’s LNG plans feed into EU’s brave new gas world

LNG terminal, Krk, Croatia (LNG Hrvatska, Public domain)

A multipolar network of energy hubs is emerging in the Central and Southeast Europe. The political dynamics of the interconnection process, between Russian sources and new sources from the US and elsewhere, leave some nations in better positions than others.

In Croatia’s case, the key project is to construct a floating liquefied natural gas (LNG) terminal in Omislaj on the island of Krk. The country’s parliament passed the bill on construction of the terminal last June and a state-owned LNG Croatia picked Golar Power to deliver the floating storage and regasification unit (FSRU), with an LNG storage capacity of 140,000 cubic meters and an annual technical capacity of 2.6 billion cubic meters (bcm) of gas.

Geopolitics

The government wants to reduce the country’s dependence on gas imported from Russia. The US Ambassador to Croatia, Robert Kohorst, said the LNG terminal would be a valuable asset to Croatia, as an insurance instrument for energy diversification, while the US Assistant Secretary of State for Energy Resources Francis R. Fannon said the terminal could turn the EU member into a regional energy leader. The US, which is pushing its own LNG agenda in Europe, supports similar projects in Poland and Germany as bulwarks against dependence on Russian gas imports.

Energy consultant Mladen Pejnovic calls it America’s “gas war” with Russia. “The terminal increases the significance of Croatia in CSE geopolitics,” Jan Mus, an expert on southeastern Europe, says. “Except for Świnoujście in Poland in the north, CSE has now access to an additional LNG terminal on the Adriatic coast. Krk is Croatia’s pass into CEE politics,” he added.

Meanwhile, the EU, with its own gas production winding down, is becoming more dependent on imports, increasing the strategic importance of countries like Croatia.

Costs

The EUR250m of the first phase of the project is being funded to the tune of EUR100m by the Croatian government, with the EU is providing a further EUR101m.

The terminal includes a floating storage and regasification unit costing EUR160m, while construction of the infrastructure necessary for receiving, storing, reloading and the regasification of liquefied natural gas is likely to cost EUR60m.

Compensation for the expropriation of the land will require a further EUR14m, bringing the total cost of the terminal to EUR234m. The remaining amount will be covered by European funds (EUR100m) and by the national electricity provider HEP and the Plinacro gas network operator (EUR32.6m).

Hungary buying in

Hungarian Minister of Foreign Affairs and Trade, Peter Szijjártó said recently that Hungary’s energy security would improve with a gas supply route from the south. The gas pipeline company Plinacro said the construction of the first compressor station for Croatia gas transportation system (KS1) was going according to plan.

In addition to Plinacro’s 75 bar transport system, the compressor station will enable an additional 500 million cubic meters of gas to be transported annually from Croatia to Hungary. Once the Omišalj-Zlobin pipeline is constructed connecting the LNG terminal on Krk with Croatia’s gas transportation system, it will be possible to transport 1.6 bcm of gas a year.

Hungary wooed by Russia

But Mr. Szijjártó also said that Russian gas deliveries to Hungary through the TurkStream pipeline could start in the second half of 2021. In an interview with Rossiya 24, the foreign minister said Hungary considers Russian energy investments in Serbia and Bulgaria highly significant since Russia and Ukraine have not yet managed to agree on transit deliveries to Europe.

Russia provides 75 per cent of Hungary’s oil and 60 per cent of its gas. Budapest, under Prime Minister Viktor Orbán, has been an advocate of the expansion of Russian energy pipelines into Europe and his support for the Turkstream pipeline carrying Russian gas to Turkey with a planned extension to Austria via Hungary is a case in point. A large long-term gas contract with Russia will expire in 2021, and there are several gas supply options within reach, including Romanian offshore gas and Croatian LNG.

Hungarian governments had been strong supporters of Russia’s South Stream project that would have shipped 63 bcm of Russian gas across the Black Sea to southern Europe and through Hungary, until the project was blocked by the EU in 2014. Turkstream is a part of Moscow’s renewed efforts to bypass Ukraine as a gas transit route to Europe. One of the Turkstream pipeline’s routes is expected to carry gas to Hungary from Bulgaria, via Serbia, for which Budapest has said it is ready to invest EUR50m.

Croatia already receives Russian gas at competitive rates, and countries in the region are less averse to Russian gas than Poland or the Baltic States, so they may be less willing to pay a premium for an alternative source of gas supply in the form of LNG.

Another possible supplier is Azerbaija, which is actively involved in the Southern Gas Corridor, a 3,500-kilometer gas pipeline from Baku to Europe slated to open in 2020.

Environmental concerns

The project has come under fire from residents, environmentalists and local authorities. Vjeran Pirsic from the environmental group Eko Kvarner said, “Some 8,000 cubic meters of underwater rock must be removed with dynamite. Also, we have no guarantee that chlorine would not be involved in the regasification process. Both are potentially harmful to sea life and to water quality.”

The terminal is due to go into operation early in 2021, and aims to fulfil demand from southeastern central European markets. Currently, however, bids have only been received for 520 million cubic meters.

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